3/24/2010 @ 6:00PM

Nascar's Most Valuable Teams

When you think of danger at the track, oil slicks, fires and five-car pile-ups come to mind. But for the past couple of years Nascar teams have faced an even bigger risk: sponsors pulling out.

Nascar teams live and die by their sponsorship dollars–they typically represent 70% of team revenues. So when Jack Daniel’s pulled the plug on its sponsorship deal after last year, Casey Mears lost his ride and Richard Childress Racing was forced to park the No. 7 car and become a three-car team.

They weren’t alone. Amid declining audiences at the track and on television, and the worst economic downturn in a generation or two, the value of Nascar teams declined for a second straight year as sponsors like Ask.com and Jim Beam walked away from the sport. The average value of the top 10 teams is $143 million, down 3% from last year.

The average team generated $92 million in revenue last year, a drop of 4%. Teams were hurt by a 19% decline in Nascar licensing revenue. Total retail sales of licensed merchandise were $1.63 billion in 2009 compared to $2 billion the prior year, according to License Global magazine. The economic downturn and a saturated licensing market helped spur the decline. Another factor was the near bankruptcy of leading Nascar merchandise company Motorsports Authentics.

Despite the revenue drop, the average operating income (earnings before interest, taxes, depreciation and amortization) for the top teams was flat at $7 million. Teams have trimmed budgets by reducing head count, tracking inventory more closely and cutting travel budgets. One area that has not yet been affected is driver salaries–but those cuts will come once contracts start to expire.

“Salaries for some drivers that have won only a race or two are way beyond where they should be,” says Zak Brown, chief executive of Just Marketing International, a motorsports marketing company in Zionsville, Ind.

Nascar’s top team remains Hendrick Motorsports worth $350 million, the same as last year. They are the New York Yankees, Los Angeles Lakers and Manchester United rolled into one. They dominate on and off the track with the best drivers (home to the top three finishers in the 2009 Sprint Cup) and the most popular racers (three of the four best-selling drivers for licensed merchandise).

Hendrick Motorsports is worth 47% more than the second most valuable team, Roush Fenway Racing. The gap in value between the two top teams is similar to baseball with the Yankees (64% more valuable than the Mets) and ManU in soccer (38% more than Real Madrid).

Hendrick is the sports leader when it comes to sponsorship revenues, thanks to the success and popularity of its drivers. Its four cars generate an estimated $115 million in sponsorship revenue annually from the likes of
DuPont
, Go Daddy,
Lowe’s
, the National Guard and
PepsiCo
. Hendrick cars have the highest budgets in Nascar, but the huge sponsorship haul allowed Hendrick to turn an operating profit of $20 million last year, the highest in the sport.

Nascar sponsorship is heading for changes, though. The days of one primary sponsor writing a check for an entire season of races are coming to an end for all but a few teams. “Primary sponsor deal prices are going to come down,” says Tim Frost, head of Frost Motorsports, which acts as a consultant to drivers, teams and track operators. Frost sees more teams splitting up primary sponsorships among two or three companies to cover the cost of 36 races.

Stewart-Haas is one team that has had success with the multi-sponsor method, as its top driver is one of the most sought after in the sport. Stewart-Haas, created when Tony Stewart teamed up with the former Haas CNC Racing in 2008, generated $55 million in sponsorship revenue last year, the most of any two-car Sprint Cup team. Stewart’s No. 14 car is the big draw and
Office Depot
, Old Spice and
Burger King
take turns with the primary paint scheme during the year.

The value of Stewart-Haas has risen 23% to $98 million, which ranks seventh overall. It is one of only three teams to see an increase in value over last year. Stewart-Haas managed to turn an $8 million operating profit on revenues of $70 million during its first season of operation. (See: “Is Tony Stewart Nascar’s Smartest Owner?”)

In addition to the drop in licensing revenue, troubled automakers dinged Nascar teams last year as they cut back on the subsidies they provided teams who drove their cars in Sprint Cup races. When Chrysler filed for bankruptcy last year it suspended cash payments for Nascar’s two Dodge teams: Penske Racing and Richard Petty Motorsports. Petty cut ties with Dodge when it merged late in the year with Yates Racing. The new entity is racing Fords in 2010. Penske is the only Sprint Cup team still racing Dodges this year.